On the charge

Chinese battery factory defies German carmakers

Electric Automobile Lithium-ion Battery Production At  Bayerische Motoren Werke AG Plant
Powering up. Source: Bloomberg

It can’t be done. Energy costs are too high and it’s not economical. Such were the complaints from the cream of the German auto industry as to why they wouldn’t, couldn’t, contemplate building a battery factory in Germany to supply their electric vehicles.

From the world’s biggest car producer, Volkswagen, to one of the globe’s biggest suppliers of auto components, Robert Bosch, top managers were unanimous in their judgment that lithium-ion batteries could not be profitably built in Germany.

Yet the Chinese firm CATL (Contemporary Amperex Technology) is planning to build just such a gigafactory at a highway hub outside of Erfurt in Thuringia, eastern Germany. And now the country’s carmakers are lining up to order billions of euros worth of batteries.

BMW announced last week it has already placed an order with CATL worth several billion euros on the understanding they would be manufactured close to their own production plants in southern Germany.

And now Daimler, too, is said to be in talks for their own multibillion-euro order, Handelsblatt has learned. BMW will be the “anchor customer” for the new CATL factory, but Daimler is also in talks with the Chinese, company sources said. Daimler had no comment. In any case, BMW and Daimler have a purchasing syndicate for non-brand-specific components.

The gigafactory is to be presented at the German-Chinese government consultations next week. It will mark the first Chinese investment in battery cell production in Europe.

Prime location

E-car batteries are quite heavy, making it very expensive to ship them all the way from China. And because of flammability issues, they can only be transported by ship, not by cargo plane, which is not in sync with just-in-time delivery. So far it is only South Korean companies who are manufacturing them – LG Chem in Poland and Samsung in Hungary. These two factories primarily supply Volkswagen and Audi.

“CATL wants to position itself strategically in the European automobile market,” said Henning Wicht, battery expert at consulting firm IHS Markit. He said the location in Erfurt, with the Fraunhofer research institute nearby in Dresden and good highway connections, makes it ideal for supplying the German market.

Demand is there. BMW ordered the batteries for its iNext fully electric sedan, which it wants to start selling in 2021. Daimler plans to have 10 fully electric models on the road by 2022. It is purchasing battery cells for its new EQ series and for its Smart Car from South Korean producers. “The more partners, the better,” is the byword at Daimler, however, because it helps keep prices down.

The new CATL factory will be built in two phases, starting with a distribution center and initial production capacity of three gigawatt hours. The rule of thumb is that each gigawatt hour capacity translates into battery cells for 25,000 vehicles annually. Construction is expected to take two years and create 1,500 jobs.

At some €800 million a gigawatt hour, the initial investment will be €2.4 billion. In a second construction phase, CATL will expand capacity up to 15 gigawatt hours, according to Mr. Wicht. The biggest existing factory is for 10 gigawatts of capacity, so the Chinese are clearly counting on a large and growing market.

04 p17 Lithium-ion batterie-01

They are also counting on support from the Thuringia state government, where officials have already earmarked financial assistance. The German federal government, for its part, has mixed feelings. Chancellor Angela Merkel considers battery cells a core technology and would have preferred to see a German company, or at least a European consortium, lead the way in battery production.

But the German automakers see battery cells as a commodity and prefer to purchase them in a competitive market rather than produce them themselves. Nonetheless, says Mr. Wicht, the complaints put up by German industry are somewhat far-fetched. A huge energy-intensive operation like battery production benefits from reduced electricity rates and exemption from government levies such as the renewable energies surcharge.

Franz Hubik covers energy for Handelsblatt and Markus Fasse is a Munich correspondent. Darrell Delamaide, a Handelsblatt Global editor in Washington, DC, adapted this article into English. To contact the authors: hubik@handelsblatt.com and fasse@handelsblatt.com

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